Goldman Sachs Global Investment Research 1 Macro Markets Themes for 2016 Francesco Garzarelli Co-Head of Global Macro-Markets Research and of European Economics [email protected]+44(20)7774-5078 02 March 2016 Goldman Sachs International Investors should consider this research as only a single factor in making investment decisions. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. The Goldman Sachs Group, Inc. Goldman Sachs Research
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Goldman Sachs Global Investment Research 1
Macro Markets Themes for 2016
Francesco Garzarelli Co-Head of Global Macro-Markets Research
+44(20)7774-5078 02 March 2016 Goldman Sachs International
Investors should consider this research as only a single factor in making investment decisions. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html.
The Goldman Sachs Group, Inc.
Goldman Sachs Research
Goldman Sachs Global Investment Research 2
A Look Back at 2015
Goldman Sachs Global Investment Research 3
Source: Haver Analytics, Goldman Sachs Global Investment Research
US Dollar Strengthens in Trade-Weighted Terms
Trade-weighted currency indices
USD, JPY and EUR, Indexed at May-2014 = 100
Ratio of narrow money base to nominal GDP Q4-2007 = 100
Non energy industrial goodsEnergyFoodServicesHICP (sum of components)GS CPI ForecastMarket Pricing Implied by Inflation Swaps
%
...And Improving Very Slowly in Japan
Japan CPI Inflation: contribution by component
and GS projections vs market
-4
-3
-2
-1
0
1
2
3
4
2004 2005 2007 2009 2010 2012 2014 2015
Infla tion (yoy)
16%-tile
Trend
84%-tile
%
Around Zero in Japan
Japan Service Inflation trend estimated
using Stock-Watson (2007) procedure
Goldman Sachs Global Investment Research 25
Source: Haver Analytics, Bloomberg, Goldman Sachs Global Investment Research
What Will Drive Macro Markets in 2016
EM Rebalancing Is Underway
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
EM FX vs USD (rolling 2-year return)
Average Valuation signal (FEER/GSDEER)
Overvaluation/depreciation
Note: v aluations are quarterly , and are adjusted f or 2-y ear-ahead (consensus) inf lation dif f erential; CE-4 currencies v aluations/dy namics are measured against the EUR; please see the main paper f or the v aluations relativ e to the
latest spot
Historical EM FX performance vs. “ex ante” valuation signals
EM FX Has Entered Undervalued Territory
-6
-4
-2
0
2
4
6
8
10
12
14
CLP ZAR PEN IDR BRL TWD MXN COP RUB NGN
Oil
Precious meta ls
Base meta ls
Bulk commodities
Commodity exposure (% net exports of GDP)
Greater exposure to oil prices
Greater exposure to metals/bulks
Precious metals: Gold, Silver; Base Metals: Aluminium,
Copper, Nickel, Zinc, Lead; Bulk Commodities: Iron Ore, Coal
Differential Impact of Commodity Price
Slide on Exporters
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A Projected 10% Decline in Foreign Official
Sector Ownership of US Treasuries
Source: Federal Reserve Board, US Department of Treasury, IMF COFER, Haver Analytics, Goldman Sachs Global Investment Research
Trend in Net Foreign Purchases of USTs
Negative to the Tune of US$200bn
Foreign official sector holding of US Treasury bills and
bonds as a share of total stock of Treasuries outstanding
Trend component (estimated through a HP filter) of monthly net
purchases of US Treasuries by the foreign official sector
net purchases of US treasuries byforeign officia l sector
USD billions Peak in March 2011
What Will Drive Macro Markets in 2016
A Further Decline in EM FX Reserves
Goldman Sachs Global Investment Research 27
Disclaimer
I, Francesco Garzarelli, hereby certify that all of the views expressed in this report accurately reflect my personal view, which have not been influenced by considerations of
the firm’s business or client relationships.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
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